Can put options held by EB-5 investors be permissible?

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Can put options held by EB-5 investors be permissible? Klasko Immigration successfully argues, “Yes”!!!

In a recent blog, Klasko Immigration Law Partners (Klasko) announced that “On August 21, 2020, Judge Merrick Garland issued an Opinion on behalf of the US Court of Appeals for the DC Circuit in the case of Mirror Lake Village, LLC v. Wolf. This case that Dan Lundy and [Ron Klasko] litigated in the District Court and ultimately the Circuit Court of Appeals is a path-breaking decision with significant impact on EB-5 transactions.”

We agree. Up until this decision, USCIS maintained that arrangements that grant the petitioner the option to require the new commercial enterprise (NCE) to redeem all or a portion of his or her equity at a specified time or upon the occurrence of a specified event and for a specified price to be an impermissible debt arrangement. Essentially, USCIS considered all types of put options held by the investor to invalidate the investment.

Historically, USCIS regarded call options exercisable by the NCE not to be acceptable. After a few seminal cases such as Chang et al v. Department of Homeland Security argued and won by Ira Kurzban of Kurzban Kurzban Weinger Tatzeli & Pratt, PA) and Jane Doe vs. USCIS, they changed their policy regarding call options. They concluded that a discretionary option held by the NCE to repurchase investor shares did not provide the investor with a right to repayment. Therefore, USCIS decided to consider these arrangements to be acceptable debt arrangements.

Now, with the recent Klasko case, as long as there is an element of risk of capital loss, or chance of capital gain, USCIS should maintain that such an EB-5 investment is compliant with the USCIS policy. There is no guarantee that the business will be successful or even be in existence in the future put exercise date. Even if it is successful, there is no guarantee that it will have available cash on a given date to honor the put obligation. Of course, this will require a complete rewrite of the policy as it stands right now.

Due to put-call parity, some might argue that if the NCE retains the right to pay back the investment and the investor has the right to be paid back, in full, that would constitute a classic case of put-call parity. They would further argue that such an arrangement would be converting the equity investment into fixed income. However, in a standard fixed-income investment, if the issuer failed to redeem the bonds or the notes at the pre-specified maturity date, they would be in default. They would not be able to argue that they happened not to have available cash in hand or that their business became unsuccessful. In the Mirror Lake Village v. Wolf case, upon exercise of the put option, the investor would be entitled to repayment only if the NCE has available cash in hand. If they don’t, they would be under no obligation to repay the investor. If they end up not repaying the investor, they would not be under default. That is why the courts sided with the plaintiff against the USCIS. That is the fundamental difference between this case and the standard fixed-income investment. 

If you want to get more information about this new seminal development on what constitutes to be a compliant redemption arrangement or EB-5 in general, please do not hesitate to call us at + 1 917 355 9251, or write to us at

Posted by americaeb5visa on September 23, 2020